Use of Dynamic Factor Analysis in Macroeconomic Forecasts
Abstract
This paper uses the dynamic factor analysis methodology developed by Stock and Watson (1998) in order to forecast inflation and the Imacec, an index of economic activity of common use for the Chilean economy. Our results indicate that using factors in the process of forecasting these macroeconomic variables improves significantly out of sample projections. Additionally, we find that factor augmented Phillips curve forecasts perform better than conventional Phillips curve forecasts based only on output gap measures.
Full text article
Authors
Copyright / Open Access Policy: This journal provides immediate free open access to its content on the principle that making research freely available to the public supports a greater global exchange of ideas and is distributed under the terms and conditions of the Creative Commons Attribution License (CC BY).
The copyright will be retained by the authors. Articles are free for personal use but are protected by copyright in the sense that they may not be used for purposes other than personal use without the permission of the author.